Question

Suppose that when the price per ream of recycled printer paper rises from​ $4 to​ $4.50, the quantity demanded falls from 800 to 600 reams per day. Using the midpoint​ formula, what is the price elasticity of demand​ (in absolute​ value) over this​ range? A. 0.003 B. 0.41 C. 2.43 D. 4

Answer 1

Answer:

Option (c) is correct.

Explanation:

Initial quantity demanded = 800

New quantity demanded = 600

Initial price = $4

New price = $4.50

Using the midpoint​ formula,

For price:

Average price:

= (Initial price + New price) ÷ 2

= ($4 + $4.50) ÷ 2

= $4.25

Change in price = New price - Initial price

                           = $4.50 - $4

                           = $0.50

For Quantity demanded:

Average quantity demanded:

= (Initial Quantity demanded + New Quantity demanded) ÷ 2

= (800 + 600) ÷ 2

= 700

Change in quantity demanded:

= New Quantity demanded + Initial Quantity demanded

= 600 - 800

= -200

Price elasticity of demand:

$=\frac{\frac{Change\ in\ quantity\ demanded}{Average\ quantity\ demanded} }{\frac{Change\ in\ price}{Average\ price}}$

$=\frac{\frac{(-200)}{700} }{\frac{0.50}{4.25}}$

= (- 0.29) ÷ 0.12

= -2.43